At the annual Ragatz Associates Fractional Interest Conference this week, the expected sunny spin on the growth of the private residence club industry was shadowed by a grim reality. First Fractional Funding, a Greenwood Village, Colo.-based mortgage company that specializes in consumer loans for fractional properties, announced that its lending partner, the National Bank of Kansas City pulled out of the fractional mortgage business.

The move, said company executives in a letter distributed at the Ragatz conference, “came as a complete surprise.” The statement from First Fractional Funding attributed the exit of the bank to the larger market forces impacting the lending market. “We believe that this is not as a result of diminishing or lost confidence in the fractional industry, but rather a necessary reaction to the overall mortgage market turmoil,” said executives in a company-released statement.

First Fractional Funding, which is currently seeking another lending partner, is no longer writing any new fractional mortgages. For the most part, mainstream banks do not offer loans for fractional properties. Loans for fractionals typically carry higher interest rates than loans for a wholly-owned primary home because the properties are perceived as carrying a higher risk. After all, how does a bank repossess an eighth of a house? There are other lenders still in the fractional financing business including Steamboat Springs, Colo.-based NextStar Funding and Vacation Finance, a Birmingham, Mich. lender focused on loans for second homes including fractional properties.

Fractional properties aren’t the only vacation home alternative facing the credit market’s tightening purse strings. Banks, from regional lenders to nationwide players, are creating lists of condominium projects, including condo-hotel developments that are no longer eligible for buyers to take out mortgages. Last month the South Beach Condos Blog noted that many south Florida lenders had effectively blacklisted a number of condominium developments, including condo-hotel projects. It posted the no-lend lists of four such banks on its site. Among the documents was Washington Mutual’s list of condo projects that it is not funding across the country. Several condo-hotel projects, including Blue Heron in Orlando, Fla., Fallridge in Vail, Colo. and several properties in Mammoth Lakes, Calif. are among the developments that the bank is no longer funding.